Woodford Concerns

Sailtheworld

Linton wrote: »

A World Equity tracker would be a totally irresponsible investment for a new investor. Any IFA who did that would have a serious mis-sale problem with the FCA and his insurer when the investor loses 40% of his wealth in the next crash.

Without being privy to the consultation between IFA and client how can you be so sure?

That wasn't really the point I was trying to make. Even someone who is 'hands off' should really try and understand how their investments are performing against a benchmark before they meet their IFA/ fund manager.

Who knows they might be performing brilliantly and they're overly worrying about the Woodford loss.

Sailtheworld

Prism wrote: »

That only works if you are 100% equities - more difficult when including other sectors like bonds and property. Its also only meaningful after we have had a full cycle including a crash or downturn. Many managed funds are set up to protect during those events and will not show their true worth until that happens.

More difficult yes, but it's not beyond the wit of even the most hands off investor to try and work how their performance stacks up against the market in general.

How do you measure the performance of people making a living investing your money for you? They'll be thoroughly delighted to hear you you religiously check up on them every economic cycle or two.

Malthusian

itwasntme001 wrote: »

Depends on the client's objectives, risk tolerance, current financial position, income etc. Advising someone to have some of their wealth in a world index tracker is not a necessarily on its own bad advice.

100% equities for a new investor is on its own ipso facto bad advice. It is like handing a driver with a brand new provisional licence the keys to a supercar. They may very well be capable of driving a supercar, but you can't possibly know that yet.

To ignore Modern Portfolio Theory and put all your money in equities, to not even give up a tiny iota of return for reduced volatility, you are in effect saying "I am a psychopathic robot and will never panic and sell out no matter how much money I appear to have lost on paper". Everyone says that they wouldn't panic during a crash and 90% of them are wrong, that's why we have crashes.

Until you have been through a crash you don't know whether you are a psychopathic robot or part of the vast majority that should use a multi-asset portfolio to reduce the impact of crashes.

Being a new investor renders the other "depends on" irrelevant as far as investing in 100% equities goes. A multi-billionaire can still panic if their £5 billion turns into £3 billion (notwithstanding that wealth management is completely different at that level).

If a new investor is filling in a risk questionnaire and deliberately ticks all the "strongly agree / disagree" answers instead of paying attention to their gut feeling, because they want to deliberately engineer a 10/10 risk profile, all they are doing is saying "I am a psychopathic robot, hit me with all the risk you got baby" and the above still applies. Until they have actually experienced a crash and seen their own money drop by 40% or more, you don't know whether they are telling the truth and nor do they.

Sailtheworld

itwasntme001 wrote: »

If you are suggesting that any portfolio should not be compared against a world equity tracker then yes i agree with you as most people should not be all in equities (and instead have a portfolio that meets objectives without taking excessive risk as you mention) and so the comparison is meaningless.

If someone is 75% equities & 25% UK Gilts then they could benchmark against VWRL for the equity part and VGOV for the gilt part. Simple rough and ready check to see how performance stacks up.

Obviously if there is a list of objectives then these should be interrogated in more detail to ensure they're being met.

itwasntme001

Malthusian wrote: »

100% equities for a new investor is on its own ipso facto bad advice. It is like handing a driver with a brand new provisional licence the keys to a supercar. They may very well be capable of driving a supercar, but you can't possibly know that yet.

To ignore Modern Portfolio Theory and put all your money in equities, to not even give up a tiny iota of return for reduced volatility, you are in effect saying "I am a psychopathic robot and will never panic and sell out no matter how much money I appear to have lost on paper". Everyone says that they wouldn't panic during a crash and 90% of them are wrong, that's why we have crashes.

Until you have been through a crash you don't know whether you are a psychopathic robot or part of the vast majority that should use a multi-asset portfolio to reduce the impact of crashes.

Who said anything about 100% equities? I clearly stated "some of their wealth".

itwasntme001

Sailtheworld wrote: »

If someone is 75% equities & 25% UK Gilts then they could benchmark against VWRL for the equity part and VGOV for the gilt part. Simple rough and ready check to see how performance stacks up.

Obviously if there is a list of objectives then these should be interrogated in more detail to ensure they're being met.

Of course, that is why i said its usually meaningless to compare just with a world equity index.

Linton

Sailtheworld wrote: »

Without being privy to the consultation between IFA and client how can you be so sure?

That wasn't really the point I was trying to make. Even someone who is 'hands off' should really try and understand how their investments are performing against a benchmark before they meet their IFA/ fund manager.

Who knows they might be performing brilliantly and they're overly worrying about the Woodford loss.

I agree that all investors should monitor their portfolio's long term performance, even if its only from regular reports from their IFA. However the "benchmark" should be the return they require to achieve their objective not some market based index.

bowlhead99

itwasntme001 wrote: »

Depends on the client's objectives, risk tolerance, current financial position, income etc. Advising someone to have some of their wealth in a world index tracker is not a necessarily on its own bad advice.

Linton's comment was in response to the person that said you should compare your returns to a world equity tracker and effectively if you don't beat the tracker you should ask questions.

Nobody is denying that it depends on objectives, risk tolerance blah blah blah and having *some of* their wealth in a global equity tracker is not bad advice.

However, to assume that some mistakes have been made if your balanced portfolio doesn't beat a global equity tracker during a period in which GBP weakens - favouring, with hindsight, overseas investments - seems quite a flawed premise. No doubt the adviser did not recommend the whole portfolio to be invested in an international equities product which can crash 50-60% from peak to trough over a couple of years of market downturn. So, when markets are favourable for that index, one wouldn't expect the more appropriate and balanced portfolio to keep up with the aggressive index product

itwasntme001 wrote: »

I am not qualified as an IFA. I am a simple retail investor. Yet i sold out of woodford over a year ago as i realised things had changed with the fund. Why dd i notice this and made a decision to sell out when your IFA did not? It appears he was asleep all this time.

I would give him the example of people like me selling out of the fund in good time so why did your IFA miss this. Afterall that is what you pay him for. I would then ask for compensation - perhaps at least all the fees he charged you. Then i would just sack the IFA.

I think you're well entitled to ask why the IFA felt that the fund was still appropriate for your portfolio despite its changes in composition, although perhaps the reason for inclusion in the first place wasn't that it was designed to generate high levels of income, and he had a reason for it. You would expect not to be the first person to think of asking him the question, so there is probably a prepared answer.

I wouldn't be particularly fussed about giving him an anecdotal example that some 'simple investor' on a forum claims they noticed the changes under the hood and pre-emptively sold out. Of course plenty of people will make good calls from time to time, whether by luck or judgement. The fact that the simple investor went one way and the IFA went the other, doesn't prove the IFA is especially incompetent. For all we know, the 'simple investor' just dumped the fund because their investment technique was to buy whatever was riding high in performance tables and dump whatever had a bad year or two, and happened to get lucky with their exit from Woodford - while later preferring to paint themselves as a canny investor expertly identifying that 'things had changed'.

Really the more relevant anecdote is that some other IFA firms' advice / due diligence providers had removed WEIF from their recommend list due to factors such as it failing to stay in the equity income sector in which it had initially started (though might not be an issue if income wasn't the original driver of selecting it) and due to perceptions that higher levels of illiquid holdings would not be appropriate if the fund had high redemptions - those redemptions being a risk in times of declining performance as had started to be observed.

Investing and portfolio construction is about opinion but had a change in risk profile been identifed, and should it have been? And how would it be identified in future following lessons learnt. Were any lessons learned and if they were, should your losses contribute to the IFA firms education while you are paying for someone to already know the lessons? Or is there no lesson to learn and it's all 'ah well, can't win them all'...

Sailtheworld

bowlhead99 wrote: »

Linton's comment was in response to the person that said you should compare your returns to a world equity tracker and effectively if you don't beat the tracker you should ask questions.

More a comment that if you're paying for investment advice you should monitor how performance compares against a benchmark.

[Deleted User]

BBC Panorama's take on problematic aspects of the financial services industry tonight:

https://www.bbc.co.uk/programmes/m0009mvp

Should be interesting. Reform overdue for some flawed processes imo